The economy is faltering? Chinese consumers aren’t buying it
James Laurenceson says despite the myriad problems impeding growth, such as the high debt levels and overcapacity, Chinese people are still spending, boosting the economy
Liaoning ( 遼寧 ), in China’s rust-belt northeast, is in recession. Output growth has not merely slowed since the boom times, it’s turned negative. This is just the second time that a shrinking provincial economy has been confirmed since the National Bureau of Statistics began collecting quarterly gross domestic product data in the late 1990s. The other was in 2009, when Shanxi ( 山西 ) fell into a six-month slump.
Liaoning is a powerful example of the problems afflicting China’s economy today. It is weighed down by debt, heavy-industry overcapacity and inefficiency, and a government reform programme that has fallen behind schedule.
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All the more remarkable, then, that official data indicates retail sales in Liaoning growing at 8.1 per cent, a respectable figure against the national rate of 10.3 per cent. This might be written off as misreporting by local authorities, were it not for household surveys also showing disposable income per capita still expanding at 6.9 per cent. Thus, Liaoning presents a paradox.
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Yes, the government must quicken the pace to cull excess capacity. Yes, it needs to do more to stem the flow of credit to unproductive firms. Yes, it has to resolve the bad debts already sitting on the banks’ books. But a spotlight is also shone on perhaps the biggest mistake that China bears make – to imagine that their pessimism is shared by the country’s consumers.
A spotlight is shone on perhaps the biggest mistake that China bears make – to imagine that their pessimism is shared by the country’s consumers
A debt crisis is widely, and rightly, viewed as the chief risk for China’s economy in the medium term. According to data released by the Bank for International Settlements last month, China’s debt-to-GDP ratio now stands at 255 per cent. That’s on a par with the US, where per capita incomes are nearly four times greater in purchasing power parity terms. Yet the bank also notes that more than three-quarters of China’s debt is owed by the corporate and government sectors. Meanwhile, the household debt-to-GDP ratio is a relatively modest 40.7 per cent. That compares with 78.4 per cent in the US.